00:00 Speaker A
I’m just curious what you make of the sell off there. I’ve had analysts come on, Sonu, and they say, listen, you know, keep it simple. These names made freak show moves, parabolic, it got overcrowded, and now we’re just letting off some steam. It’s just mechanical. Nothing fundamental has changed. Is that what you see?
00:26 Sonu
I think so. for the most part, like I said, you know, it looked a little stretched coming into July. But at the same time, you know, even if you look at last week, post earnings for Alphabet, there’s a question of, you know, is this sustainable. Alphabet basically said at the start of the year they said, we’re going to spend about $115 billion in CAPEX on AI related investments in 2026. After the first quarter, they said, we’re going to increase that to about $185 billion. Now post second quarter earnings they said, it’s now going to be somewhere between 195 and 205 billion dollars. Next year, we’re probably looking at about $250 to $260 billion from Alphabet for these AI related investments. Charles, that’s about 1. 1/2% of GDP over two years. That’s incredible. The question is, is that sustainable? I think the market’s asking that question. Now, one person’s spending or one company spending is somebody else’s revenue. In this case, it’s a revenue and profits for chip companies. If we cannot sustain this, if these big hyper scalers cannot sustain us, or if there are questions being asked about the ROI of these things, the question is what happens to the profits of these ship companies? For now, we are in the camp that the spending continues, which means the profits and revenues for these semiconductor chip companies continue, but for now, we have maybe some consolidation.
01:46 Speaker A
on that same thing, Sonu, I don’t know if you saw Steve Eisman today, he was on CNBC made some headlines, the investor who, you know, made famous of course by the the Big Short, uh, started having doubts about AI, he says, Sonu, reduced his exposure to AI, sold his stake, his long-time stake in Alphabet, warning investors could be underestimating, he says, the risks if the AI boom fails to deliver on elevated expectations. What do you make of that?
02:30 Sonu
Look, we’ve been in kind of the camp that look, there’s a big AI wave happening and that’s a macroeconomic story too. AI is contributing a lot to GDP growth. We’ll find out more when we get the second quarter GDP growth numbers later this week. But, you know, we said, you need to ride that wave and we’ve been slightly overweight the this area of the market, but you want to balance it. You want to, you don’t want to be wiped out when you’re riding that wave. So we try to barbell that, you know, start a position for the rotation we started talking about with things like low volatility stocks. If you think about what may be the most hated trade in the market right now, where there are no flows. It’s probably low volatility, but we have some of that in our portfolios to barbell out the momentum exposure.
